The leasehold system in England and Wales has been in desperate need of an overhaul since the days of medieval England. This system unfairly traps homeowners, particularly those living in flats, in an exploitative dynamic with the freeholders who own and govern the property.
This power imbalance allows freeholders to leverage the law in order to demand exorbitant amounts for ground rent and service charges. These ground rents, which historically were nominal, have become a tool for extracting greater payments. Recognizing the harmfulness, a law was passed in 2022 banning such rents in new homes.
The situation is further complicated by the fact that freeholders typically appoint building management companies to oversee maintenance, financed through service charges to flat owners. This can lead to conflicts where fees are unreasonably high, and failure to comply with a demand might result in the loss of a home without any compensation. This threat of forfeiture effectively corners leaseholders into paying these inflated, and often unjustified, fees.
From personal experience, I know all too well about this exploitation. My mother’s service charges have skyrocketed to an outrageous £33,000 per year, all while the building deteriorates and homes lose their value.
Research from Hamptons shows that in 2023 alone, leaseholders in England and Wales were burdened with £7.6 billion in service charges. A study by Which? back in 2011 pointed to a £700 million overcharge in service fees annually, a figure that appears conservative given the sector’s recent growth. As more people become aware of these exploitative practices, the gap between house and flat prices has widened—buyers are becoming increasingly unwilling to be financially chained.
In response, the government introduced a commonhold white paper aimed at eliminating leasehold from future flats. Under this system, each flat-owner would own their individual unit outright and collectively hold a stake in the shared land. This would free them from ground rents and the threat of forfeiture, as commonholders would manage expenses democratically.
However, for the millions of existing leaseholders like my mother, the government hasn’t outlined a clear path to convert to commonhold. The current expectation is that leaseholders buy the freehold first, a costly venture potentially amounting to tens of thousands per household. The government admits these costs are unlikely to decrease, and Labour has decided against funding commonhold conversions with government-backed loans, despite recommendations from the Law Commission.
Furthermore, many leaseholders face obstacles in purchasing their freehold due to restrictions from the 1990s. Labour seems poised to continue these exclusions, affecting those who weren’t part of the initial freehold purchase or those whose flats are part of a building with commercial premises.
Even for those who qualify, securing commonhold status isn’t straightforward. The proposal demands full support from leaseholders, lenders, and freeholders, albeit the government is considering lowering this threshold to 50%. True commonhold, however, would necessitate unanimous upfront financial commitment from leaseholders.
Considering this challenge, commonhold and leasehold will likely operate side-by-side within buildings, potentially leading to expensive administrative hurdles and legal disputes. Why adopt a policy that the government itself sees as possibly being more problematic than the current leasehold system?
Without a robust intervention, the government risks crafting a two-tier system, dividing new, attractive commonhold flats from older leasehold liabilities. In other parts of the world, such as Scotland, flat-owners self-manage without third-party interference; it’s high time the rest of the UK adopted similar rights—commonhold for all, not just newcomers.
